Support on NorthWestern dam purchase, with questions

April 10, 2014

Kavulla

At a Public Service Commission meeting in Havre Wednesday, speakers generally said they support NorthWestern Energy buying dams that used to belong to Montana Power Co ., but many also said questions must be answered first as to the value - and cost - of the purchase.

"This has the appearance of something that we're trying to put the genie back in the bottle - and I support that," said Bear Paw Development Corp. Executive Director Paul Tuss, who said he was speaking for himself rather than Bear Paw. "We all know what this was like when Montana Power was Montana Power. And I think that long-term price stability for economic development and growth in Montana is incredibly important. And I think that, on balance, this is the proposal that will do that for our state.

"I say that with some trepidation," Tuss added, saying people said the same thing about energy deregulation 17 years ago who now think that was a mistake.

"As we move into this, I think moving cautiously and carefully and methodically is incredibly important. ... I believe this is important and I would urge your support of this."

The meeting, convened by Public Service Commissioner Travis Kavulla of Great Falls and attended by PSC Vice Chairman Bob Lake of Hamilton, was held to collect public comment on NorthWestern Energy's proposed $900 million purchase of dams that PP&L bought from Montana Power Co. after energy was deregulated.

Montana Power sold its generation facilities to PP&L and its energy transmission facilities to NorthWestern Energy, then transformed into Touch America, a fiber optics telecommunications company.

Touch America filed for bankruptcy in 2003 and went out of business.

NorthWestern Energy also filed for bankruptcy in 2003, reorganized and came out of bankruptcy in 2004. It has pursued buying back power generation facilities since Bob Rowe, a former PSC chair, took over as president and CEO in 2008.

The rate increase caused by the purchase depends on whether it is compared to current rates or future rates.

NorthWestern is proposing purchasing the dams and charging its customers in their monthly bills, with a projected price increase in January 2015 of 8.9 percent higher than expected if the purchase is not made.

NorthWestern says that includes three-year contracts to replace contracts expiring the middle of this year that will reduce rates if the dams aren't purchased. There is no guarantee what the prices will be in 2018, the company says. The January increase would be 4.22 percent more than current prices.

Rick Burt, director of business development and community relations for NorthWestern, said the purchase will provide price stability. He presented a slide in a PowerPoint presentation showing the cost of energy transmission remaining fairly stable in the last 15 years, while the cost of buying energy has spiked and dropped - mostly spiking.

"Now, that's volatility," he said.

Burt said buying the dams, on which he said PP&L has spent $346 million to maintain and upgrade, will provide long-term price stability.

"This is a once-in-a-lifetime opportunity," he said.

But Paul Schultz of the Montana Consumer Counsel, which represents Montana ratepayers to the PSC and in court, said several questions remain.

One is the assumption that the value of the dams will be more once carbon taxes are implemented, which would drive up the cost of energy from generators like coal-fired plants and make the hydropower a better deal.

Schultz said the problem is no one knows what the carbon tax rates will be once they can be implemented in 2021 - or even if they will be implemented.

Another is the assumption that the dams will remain in good shape and require little investment for maintenance and repair, Schultz said. NorthWestern may be underestimating the cost of owning the dams, and is putting the full cost, regardless of what it is, on their ratepayers.

Several speakers spoke in support of the purchase, although some raised other questions including Jerry Malkuch asking about the rate increase when ratepayers also will pay for a new $23 million office building in Butte, and others asking about issues with NorthWestern's recent purchase of natural gas production and transmission in this region.

Doug Kaercher, finance director for the city of Havre, said the city government supports the purchase of the dams.

"I don't envy this process that you have to value anything in this ... it's an ominous job to go forward with and get a correct value," Kaercher said. "But as far as the city of Havre, we support the purchase of these hydroelectric dams by NorthWestern Energy. We feel that even if there is an increase in our rates of our electricity, the long-term stabilization of rates for the city of Havre, as a large consumer in this area, would be nothing but beneficial for all the citizens in this area."

State Sen. Greg Jergeson, who served on the PSC during much of the process of deregulation and bankruptcy, and while legislation passed allowing NorthWestern to buy back power generation facilities, said he philosophically supports NorthWestern owning its own generation facilities.

He added that hydropower would provide a good hedge on future environmental regulations.

"Your job as commissioners is not to gauge the popularity of a proposal but to determine based on the facts and evidence and the law if this purchase, this transaction, is in the public interest," he said.

He said looking at what the rates are likely to be over time and what economic advantage the purchase would give is likely to be what the decision will have to be based on.

"Those are kinds of issues that you as commissioners have to have your consultants and your experts and your staff experts to delve into," he said. "If those are all answered in the positive as I said being a vertically integrated utility and owning a clean source of energy, I think are all are positives, but those other questions have to be answered positively."

Kavulla said the Havre meeting is the first of several meetings on the topic, with a technical meeting that probably will last five to 10 days set to start July 8.

That meeting will be streamed live on the Legislature's website, he added.

The documents about the proposal are available on the PSC website at http://psc.mt.gov in its "Electronic Documents" page.

Kavulla said the PSC will welcome comments submitted on the purchase, by mail, fax, online or via email or telephone, although written comments are preferred.